In November, Mark Perry and I wrote about a forthcoming book by Hoover Institution scholar Peter Schweizer Throw Them All Out: How Politicians and Their Friends Get Rich Off Insider Stock Tips, Land Deals, and Cronyism That Would Send the Rest of Us to Prison, which detailed how members of Congress of both parties trade stock based on nonpublic information they have obtained through their positions as elected officials.
Among others, Schweizer exposed how, during the 2008 financial crisis, Representative Spencer Bachus (R-Alabama)—then the ranking Republican on the House Financial Services Committee—aggressively bought stock options based on apocalyptic briefings he had received the day before from Federal Reserve Chairman Ben Bernanke and Treasury Secretary Hank Paulson. Today, the Washington Post reports that Bachus is now the subject of an ethics investigation for the trades Schweizer uncovered:
The Office of Congressional Ethics is investigating the chairman of the House Financial Services Committee over possible violations of insider-trading laws, according to individuals familiar with the case.
Rep. Spencer Bachus (R-Ala.), who holds one of the most influential positions in the House, has been a frequent trader on Capitol Hill, buying stock options while overseeing the nation’s banking and financial services industries.
The Office of Congressional Ethics, an independent investigative agency, opened its probe late last year after focusing on numerous suspicious trades on Bachus’s annual financial disclosure forms, the individuals said. OCE investigators have notified Bachus that he is under investigation and that they have found probable cause to believe insider-trading violations have occurred.
The case is the first of its kind involving a member of Congress. It comes at a time of intense public scrutiny of congressional ethics, with the House passing legislation Thursday to tighten rules against insider trading by lawmakers. The impetus for the legislation, a version of which passed in the Senate a week earlier, came from a “60 Minutes” report and a book mentioning Bachus’s trades, “Throw Them All Out,” by Peter Schweizer….
OCE investigators are examining whether Bachus violated Securities and Exchange Commission laws that prohibit individuals from trading stocks and options based on “material, non-public” inside information, said the individuals, who spoke on the condition of anonymity because of the sensitivity of the matter. The office also is investigating whether Bachus violated congressional rules that prohibit members of Congress from using their public positions for private gain.
Schweizer’s book has also spurred bipartisan action on Capitol Hill. In his State of the Union address, President Obama called on Congress to pass legislation called the STOCK Act, which had been languishing for years on Capitol Hill. The act bans lawmakers and staff members from making financial trades based on non-public information they receive in their positions, and makes it easier for SEC officials to prosecute insider-trading cases against them.
The Senate passed a version of the STOCK Act last week, and the House passed a version a few days later. In light of the Bachus investigation, look for the two sides to come together quickly and for President Obama to sign it into law.
It’s quite an achievement for one book to have such an immediate and dramatic impact on Washington, DC. Schweizer has done the country a great service.